Making sense of the market

ByGuy HalversonJanuary 16, 2001

One of the best shows in America takes place every weekday at the New York Stock Exchange (NYSE).

At 4 p.m., Monday through Friday, the chairman of the exchange, Richard Grasso, or some other top official rings the bell to close that day's trading session. When it's been a good day, people cheer. (Lately, they've been pretty quiet, though.)

Down on the trading floor, before the bell rings, it looks like a mess. People race back and forth. They shout. Phones ring. It's very noisy. It's a normal day!

The NYSE dates back to 1792. Back then, investors wore powdered wigs. They gathered around a buttonwood tree on Wall Street in lower Manhattan to buy and sell stocks. Wall Street once had an actual wall. It was a 12-foot-high wooden stockade fence built to protect the original Dutch settlers.

Except for the NYSE, most investment "houses" (businesses that invest people's money) are now located in other parts of New York City or even in other cities. But we still refer to the investment business as "Wall Street." (In the same way, we call the movie business "Hollywood," though many films are not made in that section of Los Angeles anymore.)

New York's stock exchange is the best known in the United States. It's home to some 3,025 companies with a total worth of more than $16 trillion. Los Angeles, Chicago, and Philadelphia also have stock exchanges. So do London, Tokyo, and Frankfurt, Germany.

But the NYSE is not the biggest exchange in the US. The one with the most companies and the most shares traded is not even in New York.

In fact, America's biggest stock exchange isn't anywhere, really. It has no building, no trading floor. You can't visit it. That's because it's an electronic exchange, where stocks are bought and sold by computer. It's called NASDAQ. That stands for "National Association of Securities Dealers Automated Quotations." That's such a mouthful, most people just say "NAZ-dak."

What does a stock market do? Why do we have them?

Economists study the way people produce, distribute, and consume goods and services. Economists call stock markets an "efficient" trading system.

Efficient? Not always. The stock market broke down in 1929, leading to the Great Depression of the 1930s. It stumbled again in 1987, but was quickly repaired.

What economists mean is that the stock market is a good way to create goods and services. Companies raise money by selling stock. They use the money to hire people or buy materials to sell insurance or make widgets.

Let's say you want to buy some stock. How do you do it?

First, you need to contact a stockbroker, someone licensed to buy and sell stock. You could go to a big-name, "full service" firm, or a "discount" broker. You can also go to an online brokerage. (In most states, you must be 18 or older to have your own account.)

Tell the broker what you want to buy. Let's say you want 100 shares of a particular car company. (A hundred shares is a "round lot." "Odd lots" are orders of fewer than 100 shares.)

The broker doesn't personally have the stock you want. He has to find someone, somewhere, who wants to sell his shares of that stock.

Your broker may ask someone like Mike Newman to find a seller for you. Mr. Newman is a "floor broker" on the NYSE. He's one of those people who runs around and shouts. Newman's job is to transfer stocks from sellers to buyers. Stocks don't sell for fixed prices. A stock market is like an auction, where buyers are matched up with sellers. Prices may change day to day, even minute by minute.

Newman, who works for the investment house A.G. Edwards &amp; Sons, thinks of his job in terms of football. Sometimes he's a quarterback throwing the ball (selling stock). Sometimes, he's a wide receiver - catching it (buying stock). He's often a lineman, running back and forth.

Newman's "playing field" is 150 feet long and 15 feet wide. It's on the north side of the NYSE trading floor, called the "garage." (Two hundred years ago, it was a horse stable.) There are four trading posts in this zone, small areas occupied by specific companies, such as clothing store Ann Taylor, oil-company Texaco, or consumer-products giant Procter &amp; Gamble.

Newman wears a business suit to work, but he walks and runs about 10 miles a day "executing" (doing) his "trades" (stock purchases and sales).

"I try to stay very unemotional and very cool," he says, and laughs. "But it doesn't always work out, since there is constant shouting by other floor brokers." "Adaptability" is a key quality, he says. "I don't like to shout, but sometimes you have to be very loud to be heard." Being quick at math is important, too, he says. He deals in huge sums of money.

When Mike Newman finds someone who will sell 100 shares to you - that's when you'll know for sure how much it will cost. He and your broker will get some money for the deal.

Then you'd be the proud owner - well, at least a part-owner - of your very own company!